Friday, July 2, 2010

Genting Singapore : Hiving off Genting UK Casino

The group announced that it has entered into a sale and purchase agreement for the disposal of its entire equity stake in its UK casino operations to Genting Worldwide (UK) Limited, a wholly owned subsidiary of its sister company Genting Malaysia, for a cash consideration of GBP340m, or SGD688.8m. Maintain BUY.

We view the disposal positively for Genting Singapore as
1) the transacted valuation at 11.2x FY11 EV/EBITDA is attractive compared with the peer valuation in UK for Rank Group PLC, which although being a larger company is trading at only 6.3x FY11 EV/EBITDA,
2) the UK casino assets are considered non-core as they contribute less than 5% of group earnings, whereby the EBITDA margin of 15% is significantly lower than Resorts World at Sentosa casino’s 30%,
3) the sales proceeds can be channeled into higher yielding future strategic growth opportunities, and
4) unlocking of resources that can be channeled into improving the operations of RWS

Marginal immediate term impact on core earnings. The group’s net debt to EBITDA is expected to decline to 0.8x from 1.4x upon completion of the disposal. Assuming that the entire proceeds were to yield an average return of 2% from a combination of fixed deposits and other money market instruments, we estimate the net impact on earnings post disposal of the UK operation at a marginal 2.6% decline as the ultra low returns of fixed deposits and money market instruments would be insufficient to fully offset the loss in earnings from the disposal. The disposal will, however, give rise to a one off non-recurring gain of SGD103.6m. Focus on larger scale future ventures. More importantly, the disposal of its UK operation signals management’s focus on leveraging on its expertise to develop future large scale integrated casino projects which provide more compelling growth for the group, in our view.